Greetings, Agents of Impact!
Featured: Muni Impact
The winding road to ESG standards in the municipal bond market. A paper manufacturer in Kalamazoo, Michigan, issued $100 million through a Michigan state conduit authority in October 2021. The bonds were designated as “green,” the company wrote, because the proceeds would be used to build a recycling facility. Nowhere in the offering statement was there any mention of a long history of pollution violations in the mostly-Black neighborhood where Graphic Packaging International intended to build its new facility, information that investors interested in environmental issues would surely have liked to know. The Graphic Packaging deal highlights the problems inherent in a marketplace with no agreed-upon standards for ESG disclosures. At around the same time as the bond issue, the Municipal Securities Rulemaking Board, the market’s principal regulator, announced it was soliciting input on how environmental, social, and governance principles should be represented in the market. Consensus has been difficult to achieve, as comment letters to the board make clear.
- Early models. “We are seeing our market evolve, and examples of robust disclosure that I think will provide a model for other issuers to emulate,” says MSRB’s Mark Kim, who pointed to Chicago’s recent social bonds as an example. Kim acknowledges regulation may be premature. Efforts by the SEC to encourage climate disclosure requirements by public corporations might catalyze progress in the muni market, he says, as a first step toward a “regulatory framework for the broader marketplace.”
- Market catalysts. Tax credits and subsidies for renewable-energy projects in the 2022 Inflation Reduction Act could spur change in the muni market. The IRA allows municipalities to issue taxable bonds to pay for qualifying projects, and then claim from the federal government a payment equal to the amount of income tax that bond investors would have avoided under a traditional tax-exempt scheme. “We need to watch to see if it draws new investors into the space and if you can get to a critical mass so that the traditional tax-exempt old-school muni perspective is balanced out,” says Justin Marlowe, a professor at the University of Chicago’s Harris School.
- Cost of capital. Without a strong push from a regulator with teeth — the MSRB has the ability to set rules but not enforce them — standards will likely have to come from another source. The broad acceptance of ESG principles in markets around the world is proof that it need not be difficult, says Phillip Ludvigsen, a long-time ESG consultant. Ludvigsen told ImpactAlpha most municipal governments will be guided by the bottom line. When it comes to green muni bonds, he says, “I’ve seen a lot of movement mainly because of the lower cost of capital.”
- Keep reading, “The winding road to ESG standards in the municipal bond market,” by Andrea Riquier on ImpactAlpha. Check out all of ImpactAlpha’s Muni Impact coverage, sponsored by Robert Wood Johnson Foundation.
Dealflow: Climate Justice
BlocPower raises $154 million to decarbonize buildings in low-income neighborhoods. The Brooklyn-based climate tech venture will use the debt and equity funding to partner with municipalities in the U.S. for large-scale building electrification and decarbonization, especially in low-income and underserved communities and communities of color. “Our thesis is that low-income and financially underserved communities in cities led by Black and Hispanic mayors are going to lead the climate revolution and the baton must be and should be handed off to a much more diverse range of climate stakeholders,” BlocPower’s Donnel Baird told ImpactAlpha. “Just look at the city of New Orleans, Houston, New York. These are Black-led cities that are on the frontlines of the climate crisis.”
- Capital infusion. BlocPower’s investment round includes over $24 million in Series B corporate equity from VoLo Earth Ventures, Microsoft Climate Innovation Fund, Credit Suisse, Builders Vision, New York State Ventures, Kapor Capital, My Climate Journey and other investors. The equity portion also includes individual backers such as CNN host Van Jones and NBA player Russell WestBrook. Goldman Sachs provided the $130 million debt portion. Last week, the Biden-Harris administration announced plans to deploy $550 million in grants from the Inflation Reduction for environmental justice investments in disadvantaged communities.
- Local impact. In New York, BlocPower secured an initial $37 million from New York Mayor Eric Adams to launch its civilian climate corps program. The program pays trainees $20 per hour to learn how to install heat pumps, solar panels, electric charging stations and other low-carbon, electric equipment. Last year, BlocPower secured an additional two-year, $108 million New York City contract to train up to 3,000 workers annually, especially in communities with a high risk of gun violence.
- Data toolkit. BlocPower has raised over $250 million to install heat pumps and other building electrification projects. It has retrofitted more than 5,000 households, commercial buildings and houses of worship in low-income and underserved communities in the U.S. since 2014. Earlier this year, BlocPower announced a multi-year, nearly $490,000 contract with the city of San Jose to electrify 250 residential homes as part of BlocMaps, its software and data toolkit that helps municipalities and utilities identify which buildings are in desperate need of energy upgrades, as well as project costs, energy savings and incentives calculations.
Dealflow overflow. Other investment news crossing our desks:
- U.K.-based EO Charging raised $80 million in equity funding to provide smart-charging solutions for electric car, van, truck and bus fleets in North America and Europe.
- San Francisco Bay Area-based climate tech startup Gridium scored $14 million to decarbonize commercial real estate buildings.
- Serena Williams’ early-stage venture fund Serena Ventures backed SoLo Funds, a Black-owned personal finance startup targeting consumers from economically disadvantaged communities.
- Ford Foundation and Borealis Philanthropy launched the Disability x Tech Fund with $1 million to support disability-led organizations working at the intersection of disability rights, justice and technology (see, “The impact case for bridging financing gaps for disabled founders”).
Impact Voices: Care Economy
How private investment in the care economy can work for care workers as well. Pandemic-era awareness about the value of childcare, eldercare, and other caregiving in the U.S. has led to a boom in private investment. Last year, child-care startups brought in almost $108 million in venture capital funding, a 128% increase over 2019. Investments in homecare and eldercare also increased nearly threefold between 2017 and 2021. It’s not just brick and mortar day care centers and retirement homes. A range of businesses from care planning apps to medical assistance devices are ripe for investment, with a market valued at nearly $650 billion. “While this influx of capital can benefit struggling consumers, the same benefits have not materialized for care workers,” say Rachna Saxena and Shruthi Jayaram of Dalberg, which worked with the National Domestic Workers Alliance Labs to map over 500 care-economy investors. The consultants “found a stark lack of consideration for how to support and value the workers that provide many of these care services. “Addressing this challenge is both a business and moral imperative,” Saxena and Jayaram write in a guest post.
- Valuing caregivers. Growth opportunities exist in companies that directly serve care workers, including Wonderschool and Care Academy. “There is significant promise here both in terms of potential returns for investors but also the potential to have an outsized impact on the training, benefits, and value for care workers,” say the authors. Other categories include companies that connect workers and employers, such as UrbanSitter. Labor shortages risks slowing growth in the sector. “Investors have strong incentives in ensuring these platforms increase the value proposition for workers.”
- Care investors. Of the 500 investors that Dalberg mapped, 80 of the institutions were not traditional investors, but care companies that merged or acquired another business to maximize efficiencies and profits. One-third were care-explicit investors, such Springbank Collective, that have a partial focus on care as a vertical (e.g., childcare or eldercare) or as a result of a specific investment strategy (e.g., gender lens investing). Half of investors invested in care-focused companies as part of aligned verticals, such as Bain Capital Double Impact, which invested in HiMama through its education and workforce development strategy.
- Keep reading, “How private investment in the care economy can work for care workers as well,” by Dalberg’s Rachna Saxena and Shruthi Jayaram.
Agents of Impact: Follow the Talent
Columbia Business School grad Andrea Zapatajoins VC Familia and Founder Familia as head of programming… The Rockefeller Foundation is hiring a director of innovative finance in New York… Environmental Defense Fundseeks a managing director of sustainable finance and EDF+Business in New York… Defy Ventures is looking for a startup executive director in its new Pennsylvania chapter.
U.N. Environment Programme’s Finance Initiative is recruiting interns in climate risk and responsible banking… Applications are open for Google’s Black Founders Fund in Africa, Brazil, Europe and the U.S., as well as its Latino Founders Fund in the U.S… Frontier Markets Newswill co-host an event with Brand South Africa on South Africa’s just energy transition, March 7, in New York.
Thank you for your impact.
– Mar. 1, 2023